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Forget the two-week holiday in Sardinia. For investment bankers the second half of 2004 could be a good time to take a six-month sabbatical. It promises to be an uncomfortable period.

William Rucker, Lazard: We face an environment in which relatively few conventional corporate takeovers are taking place

Bankers remaining in the office face six months of being squeezed between wavering corporate executives who are uncertain about doing deals and demanding managers who will be turning up the heat for higher revenues.

Pressure on investment bankers to grow revenues is acute. Their colleagues on the sales and trading side of the business are fast running out of steam. Bond and equity trading conditions have become more difficult and revenues there are falling, according to second-quarter results from five Wall Street banks.

There is no obvious source of new deals to lift second-half volumes. All-important corporate clients are not preparing landmark deals.

Chief executives at two of Europe’s biggest independent corporate finance houses say they see little scope for excitement in the second half of the year.

William Rucker, chief executive of Lazard in London, said: “The M&A market remains fairly flat. We continue to face an environment in which relatively few conventional corporate takeovers are taking place. This will only change when deal confidence returns.”

Robert Pickering, chief executive of Cazenove, the UK corporate broker, said: “It might be that cyclical highs are not achievable for some considerable time. It does not feel like a boom time by any means, although some deals are getting done. Over the past six to nine months clients have been looking at big transactions with associated funding but these deals have then gone away.”

Bankers say the message they hear consistently from clients is that the second half of the year is full of potential barriers. US elections, uncertainty in the Middle East, rising oil prices and interest rates, and questions over corporate profits, all weigh heavy and are leading a lot of executives to think that 2005 might be a better environment for dealmaking.

Jim Quigley, president of Merrill Lynch International, said: “We are probably going to see a relatively uneventful second half but analysts and the press should not interpret that as meaning we are going to struggle.” The equity market is going to remain strong enough to receive deals already in the pipeline, Quigley added.

Bankers are running up against a wall of indifference. Corporate Europe, in particular, is on the defensive. France Télécom perhaps embodies the frustrations of investment bankers in Europe. It counts among the bluest of Europe’s blue chips. It operates in a sector that was at the centre of speculation about a further wave of consolidation at the beginning of the year. However, European telecoms deals of note have not materialised.

Michel Combes, finance director of France Télécom, said he was having no problem resisting the overtures of bankers to do big acquisitions.

Combes said: “We are not convinced that major acquisitions create value – we have not seen that happen in the telecoms business.” Small deals could figure, he said, which will provide crumbs of comfort for his advisers. Instead, he and France Télécom will stick rigorously to a disciplined financial plan.

France Télécom has completed one of the biggest initial public offerings of the year with its €1.26bn ($1.58bn) float of Pages Jaunes, its directories subsidiary. However, the proceeds are earmarked for debt reduction and organic growth – not acquisitions. Indeed, having more cash to burn is a trait evident across corporate Europe.

With profits rising and the debt capital markets having been a cheap and easy source of funding for three years, European companies are flush. Cash and short-term assets at the top 350 European corporates increased by €50bn through 2003 to reach €455bn at the end of the year.

A lot of the concerns among corporate executives stem from the lack of impetus in world equity markets and the feeling that investors would prefer to see solid performance and conservative tactics such as debt reduction or share buy-backs, rather than big mergers and equity issues. They are wary of unsettling shareholders, are steering clear of big M&A deals and are cautious about equity offerings in a sideways-moving market.

Investors, burnt in the past after being sold on big-ticket deals, are sceptical. They prefer smaller M&A deals – not the deals that bankers call “company transforming”.

Bob Parker, vice-chairman at Credit Suisse Asset Management in London, said: “We believe there is scope for consolidation in some specific areas such as life insurance and banking.

“But the only area where investors really welcome consolidation is where we see companies that have lost their way being taken over, restructured and revamped. We believe that over the next six months we should see successful companies taking market share off less successful companies – sometimes by buying the less successful companies,” Parker said.

For many bankers the second half of the year promises to be one in which they will be happy to tread water. Optimists forecast a rebound in activity towards the end of the year.

However, many are already looking towards next year when they hope there will be more certainty on the future of oil prices, how far US interest rates will rise and who will be in residence at the White House.